YC grad Leaky quietly shuts down, a valuable lesson in disruption

By Carmel DeAmicis , written on September 9, 2013

From The News Desk

Y Combinator grad Leaky shut down a week and a half ago, and practically no one noticed. The startup, founded in 2010, aimed to be an Expedia for car insurance, allowing users to enter their personal information and receive customized rate comparisons. Leaky got $670,000 in seed funding from YC, 500 Startups, Box Group, and Start Fund.

There's a message on the website telling users:

On August 31, 2013, we wrapped up operations on our auto insurance comparison business and will no longer be providing prices to new or existing users. Moving forward, our focus will be on our commercial insurance business, which has been acquired by Navion Insurance.
When I reached out to Leaky for comment, co-founder Jason Traff responded via email, "[W]e were sad to shut down our auto insurance comparisons… For over two years, we tried to get a foothold in the industry, which proved difficult as industry outsiders with a disruptive business model."

Traff confirmed that Leaky was acquired by Navion, a California insurance broker, but said he couldn't provide any more information at this time. Navion did not return requests for comment.

Leaky's failure serves as a lesson for other startups looking to tackle entrenched industries. It's not easy, and you might want to get the industry on your side before you launch.

To get varying insurance quotes from each provider, Leaky scraped the companies' websites without informing them. When Leaky opened to the public, it received a lot of media attention. Insurance companies realized what it was up to, hit it with cease and desist letters, and soon after launching Leaky had to shut down and reevaluate.

"Leaky was operating under the field of dreams theory: if you build it, they will come," Greg Isaacs, president of competing startup CoverHound, says. Isaacs explained that insurance companies are suspicious of disruptive forces. Once Leaky pissed the companies off by scraping their data without partnering, Leaky was in the doghouse.

The startup figured out a new plan: every insurance company has to publicly file how they determine their rates, so Leaky would use those filings to get the rate information. Sounds simple enough, but CoverHound's Isaacs says that rating segmentation has ballooned, and insurance carriers themselves have massive departments handling their own internal information ratings systems.

"I'm not sure why Leaky wasn't successful, but my guess is it was just too labor intensive," Isaacs says.

In an email, Leaky co-founder Jason Traff told me, "Unfortunately, one of a startups only real advantages is the ability to move quickly, and partnering with auto insurance companies was anything but fast."

In contrast to Leaky's approach, its competitor CoverHound partnered with insurance carriers from its inception to get their quotes. It was able to do this because the CoverHound founders worked in car insurance for years before launching their company -- they had the networks and the industry trust to bring carriers on board. As a result, CoverHound didn't have to use precious funding to comb through public documents. It could focus on customer service and monetization strategy.

Coming from Silicon "Move Fast and Break Things" Valley, it may seem easy to disrupt an entrenched industry and create something better for the consumer. All you have to do is not suck, right?

But if you don't have a background in that field, there may be important points you overlook or don't understand. It's worth considering hiring someone who has been in the business for years to act as your intermediary.

You might see older entities as slow, dumb, or inefficient but that doesn't mean they can't crush you.

[Image courtesy: Ben Haine]